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GMS: Gold scheme being sweetened for wider reach

The scheme’s performance has seen some improvement in recent years, but is still a far cry from the lofty goals set by the government.

gold monetisation scheme
During the pandemic, the gold bonds became more attractive than some other asset classes.

The government is weighing a proposal to slash the minimum deposit requirement under its gold monetisation scheme (GMS) in phases to induce a large number of people to park their idle holdings with banks.

The scheme’s performance has seen some improvement in recent years, but is still a far cry from the lofty goals set by the government.

The minimum threshold could be reduced to 5 grams (worth Rs 25,690 at current prices in Delhi) from ten grams now and, in the longer run, to just one gram or less in phases, sources told FE. Last year, the government trimmed the minimum deposit to 10 grams from 30 grams, as the earlier threshold was considered too high to draw common households. But even the current limit, analysts say, is proving to be restrictive for many in rural India, which accounts for a bulk of the country’s total gold holdings, estimated to be at least 25,000 tonne, worth over $1.6 trillion.

Similarly, people wishing to deposit gold up to 50-100 grams each in banks may not be asked any question by the taxman.

These are among the proposals being considered by the government before it finalises the next set of changes to the GMS to boost mop-up under the scheme and discourage imports of the precious metal.

Of course, some of these proposals were discussed before the government notified the last set of changes to the GMS in April 2021. Although they were not part of the changes then, some of these are still being deliberated on, said one of the sources.

The fresh push for monetisation comes at a time when gold imports, having remained subdued for some years, jumped 33.4% in FY22 from a year before to $46.2 billion, reviving fears of a further spurt in the current fiscal as well in light of elevated retail inflation.

“The proposals for the next round of changes to make the GMS more attractive are being discussed. A final decision will be taken by the finance ministry in due course,” a senior government official said.

A senior industry executive suggested that the current policy focus will be on bolstering infrastructure (testing and melting centres, etc) in rural areas, apart from undertaking a huge campaign, led by banks, to promote the GMS. “Once this is done, there should be targeted focus on wooing temple trusts which are sitting on huge amount of gold. But for this, the tax department should also clearly state that they won’t ask questions about the source of gold or seek to unduly probe the accounts of the trustees and others following the deposits,” he added.

Just before the Covid outbreak in 2020, the government had garnered only 21 tonne of gold through the monetisation scheme in over four years since its inception. The sovereign gold bond programme had witnessed a greater mop-up until then, equivalent of about 30 tonne of the precious metal. Both were launched in November 2015 by Prime Minister Narendra Modi to discourage gold imports to curb their debilitating impact on trade and current account balance.

While the GMS is aimed at tapping household stocks, through gold bonds, the government wants to wean away investors from the purchases of the physical metal to “paper gold”.

During the pandemic, the gold bonds became more attractive than some other asset classes. In August 2021, finance minister Nirmala Sitharaman told Parliament that the government had collected Rs 31,290 crore (equivalent of over 61 tonne of gold at Saturday’s price) from the bond scheme since its launch. Still, the combined collections from the gold schemes represent only a tiny fraction of the country’s consumption during this period. India’s gold demand in a normal year stands at 700-800 tonne.

The annual interest rate on gold parked with banks under existing GMS is up to 2.5% (which varies, depending on the tenure of deposits).Currently, a limited number of collection and purity testing centres (and their lack of desired efficiency), more so in rural areas, and the unwillingness of housewives to get jewelleries melted so that these can be deposited have dented the appeal of the gold monetisation scheme. With renewed push, though, the mop-up under the monetisation scheme can go up, analysts have said.

Nevertheless, the current GMS has witnessed a marked improvement upon an earlier one under which the government had garnered only two tonne of gold between 1999 and 2015.

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